Energy Performance Certificates have been a familiar feature of buying, selling and letting...
The sale of a privately owned limited company can be done via two principal methods: a share sale or an asset sale.
- Share sale: This involves selling a company’s shares to a buyer. All assets and liabilities of the company remain once the sale of shares is complete.
- Asset sale: In this type of transaction specific assets, such as goodwill, intellectual property, plant and machinery and/or property are sold by the company. The buyer therefore only assumes responsibility for the assets (and liabilities, if any) that it agrees to acquire.
1. Is an NDA required?
Sensitive information may be shared with the buyer early on in the sale through the due diligence process. To protect confidential information and trade secrets, sellers should consider having a non-disclosure agreement (NDA) signed before discussing or sharing sensitive details. Even with an NDA in place, the sellers should consider whether and when it is appropriate to make certain information available.
To understand the general process involved when selling a business, please refer to our flowchart here.
2. Decide what is being sold
Establish whether the buyer intends to purchase the shares (which then includes all assets and liabilities) or specific assets (e.g. particular equipment or property). During initial negotiations, consider the purchase price and other key terms of the sale. Recording these terms in writing will form the heads of terms and subsequently clarify the form of the main agreement for the transaction. This will either be a share purchase agreement or an asset purchase agreement.
3. Is the business’s documentation up to date?
A buyer will want assurance regarding the company’s history – is it free of issues, or can they become comfortable with or manage any issues identified?
Ensure the following are available and in order:
- statutory books – including the register of members and the register of directors etc.;
- constitutional documents (e.g. articles of association, shareholders’ agreements etc.); and
- key contracts, property title documents, and staff contracts.
As part of the due diligence process, a buyer will likely review these to assess liabilities and determine if any new contracts or terms need to be negotiated before completing the sale.
4. Can the business’s accountants assist?
It is important for the company’s accountants to assist with the sale process and provide any necessary tax advice together with insight on the finances. Tax implications can often influence the structure of a transaction, making expert guidance vital from an early stage.
5. Clearly define the reasons for selling
Selling a business can be a challenging process. Due diligence may uncover unexpected issues, but proper organisation, well-maintained documentation, and effective communication will make the process smoother.
During the sale process, sellers should stay motivated and keep their objectives in sight -whether retiring, succession planning, or pursuing new opportunities. Remaining mindful of reasons for selling can help maintain focus.
If you have any queries on preparing your business for sale, please contact us.
Please note that we do not provide tax advice and strongly recommend consulting with your accountant or tax adviser before proceeding with any business sale.